Electric vehicle (EV) owners in Canada should be prepared to pay more for insurance in the future, according to a new industry report.
With the federal government’s newly released mandate for all vehicle sales to be zero-emission by 2035, a new report from Morningstar DBRS is highlighting an impending rise in insurance premiums for EV owners. According to the report, this increase is primarily attributed to the higher purchase prices and repair costs associated with EVs.
The intrinsic value of EVs, coupled with the sophisticated technology they employ, renders them more expensive to repair in the event of an accident. Batteries, which represent a significant portion of the vehicle’s cost, are also a factor to consider as damage to these batteries can lead to substantial repair expenses, or in some cases, require the total replacement of the vehicle.
The insurance industry in Canada is bracing for this shift, anticipating a rise in claims costs as more Canadians opt for electric over gas-powered vehicles. This anticipation is based on data and trends observed in other markets where EV insurance claims have been notably higher than those for traditional vehicles. For example, in the United Kingdom, insurance costs for electric cars surged significantly, attributed to the higher costs of repairs and the complexities involved in addressing damages to advanced technological components.
However, the highly regulated nature of Canada’s auto insurance industry may mitigate the immediate impact of these anticipated increases, according to the report. Provincial governments, responsible for overseeing auto insurance policies, must approve any rate hikes, potentially cushioning the blow to EV owners’ wallets.
This regulatory environment aims to ensure that insurance remains affordable while reflecting the evolving risk profile and repair costs associated with electric vehicles.
For EV drivers in Canada, a silver lining might be found in the highly regulated Canadian automobile insurance industry. Provincial governments are responsible for the regulation of auto insurance policies, including the monitoring of claims handling and dispute resolution. Provincial regulators also review and approve requests made by insurers to increase rates before they can be implemented. This could help mitigate the impact of insurance rate increases on the finances of EV owners on renewal or when an EV is registered for the first time.
Victor Adesanya, Vice President, Insurance
Despite these challenges, the transition to EVs represents a crucial step towards sustainable transportation in Canada. Insurers are adapting to this new reality, employing data-driven approaches to refine their pricing models and ensure they accurately reflect the risks and costs of insuring EVs.
For Canadian drivers, this means staying informed and exploring options as part of the broader move towards a greener future.
